Real estate in 2024 vulnerable to four factors
A research and development company is predicting that four factors could negatively impact real estate in 2024: interest rates, labour costs, expenses, and banking.
For 2023, loan rejection rates are expected to rise by 60-65% beyond credit approval, according to Prapansak Rakchaiyawan, the managing director of LWS Wisdom and Solution (LWS), a real estate research and development company in the LPN group.
Risk factors will have an impact on the real estate sector in 2024, including previously noted fluctuations in the global economy and the Thai economy. Prapansak notes a further four risk factors indicated by the company’s research:
1. Interest rates: Tending to remain at a high level, the rates will have a direct impact on the financial costs of real estate developers and home buyers causing the costs of project development and housing purchases to increase.
2. Minimum wage increase: If the new government’s policy to increase wages to a minimum of 400 baht per day comes into effect in 2024, it would directly affect the operating costs of real estate operators and would be a factor in causing a house price increase.
3. Following the increase in energy prices, the price of construction materials tends to increase, in turn increasing construction costs and house prices.
4. As financial institutions apply stricter judgment in approving housing loans, it would directly affect market purchasing power.
In 2023, there has been a loan rejection rate of 60-65% of the total of loan approval applications. In 2024, the Bank of Thailand will continue a strict monetary policy for considering loans from financial institutions due to the high household debt burden, while the proportion of non-performing housing loans remains high compared to other types of personal loans.
This would have a direct impact on the purchasing power for housing in the market, especially housing with a price lower than 3 million baht per unit, he said.
Given these business risk factors, LWS recommends advising real estate entrepreneurs to adjust the sales strategies of developers and residential sellers, instead of acting as financial advisors for people seeking a home to live in or as an investment.
The sector should emphasise financial management advice to customers so that their financial structure would be accepted and considered for loans by financial institutions, said Praphansak.
This is particularly true for self-employed customers, who are often rejected for loans from financial institutions as they have an uncertain base income.
If real estate companies could cooperate with financial institutions and provide advice to customers on financial management, they would reduce the risk of being rejected for loans by financial institutions, Praphansak noted.
“Real estate entrepreneurs should emphasise planning and making adjustments according to buyer behaviour,” said Praphansak. “This is the key to driving the business to overcome the risks and fluctuations that occur, and maintain sustainable business growth regardless of the risks and uncertainties that arise.”
